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SUMMARY OF A REGISTERED BROKER-DEALER'S
RETENTION REQUIREMENTS by Daniel A. Bernstein, JD, AIFA Broker-dealers must comply with a myriad of requirements regarding the retention of e-mail. Unlike investment advisers, broker-dealers do have specific rules that require them to keep e-mails. In addition, broker-dealers must keep e-mails, and all electronically stored documents, in a particular medium. Broker-dealers must be cognizant of SEC, FINRA and other applicable self-regulatory organization rules and regulations. Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934, require broker-dealers to preserve certain electronic records. If the records are kept electronically the broker-dealer must: (i) preserve the records in non-rewritable, non-erasable format; (ii) verify automatically the quality and accuracy of the recording process; (iii) serialize the original and any duplicates as well as time-date the information; and (iv) have the capacity to readily download indexes and records preserved. The broker-dealer keeping electronic records must also: (i) have available facilities for immediate, easily readable projection or production of the records; (ii) be ready, and immediately provide, a facsimile of the record; (iii) store separately from the original, a duplicate copy of the record; and (iv) organize and index accurately all information maintained electronically. Many FINRA Rules are potentially triggered by the use of e-mail. FINRA Rules expressly adopted Rules 17a-3 and 17a-4 mentioned above. Rules 2110 (standards of commercial honor and principles of trade), 2210 (communications with the public), 2310 (recommendations to customers (suitability)), 3010 (supervision), and 3110 (books and records) as well as numerous interpretive releases speak about the retention and supervision of e-mail communications. The FINRA even published a “Guide to the Internet for Registered Representatives” to help registered representatives navigate compliance requirements when using the internet and e-mail. The guide explains that registered representatives’ requirements when utilizing e-mail are the same as any other written communication with the public. E-mails can be deemed advertisements, sales literature, correspondence, and public appearances to name a few. The guide emphasizes that e-mails from a registered representative’s home or personal e-mail account are treated the same as e-mails from the office account. Broker-dealers are responsible for establishing and maintaining written supervisory policies and procedures reasonably designed to achieve compliance with all applicable securities laws and regulations, and with FINRA rules. Broker-dealers must also supervise personnel’s activities regarding these laws, regulations and rules. The written procedures must require the review of incoming and outgoing written and electronic correspondence with the public as well as providing for the education and training of associated persons as to the firm’s procedures governing correspondence. Daniel Bernstein is the Director of Professional Services for MarketCounsel, one of the country’s preeminent business, regulatory, and compliance consulting firms for registered investment advisors. |